This is the first in a series of posts that Roger Chen and I will write covering the Mobile On-Demand Services landscape. Our goal is to shed light on this rapidly growing industry, highlight areas of particular growth, and pose questions that we believe will shape the industry’s future. Our posts will feature interviews with founders as well as offer our perspective on where we see the industry heading. We define Mobile On-Demand Services as follows: “apps which aggregate consumer demand on mobile devices, but fulfill that demand through offline services” – Semil Shah, Haystack Fund.
The on-demand services opportunity is important due to the growth of Mobile. Much has been written about the future of Mobile Internet, and Mobile is quickly becoming one of the most impactful segments of the digital economy. Today, over 25% of total web usage happens through mobile (vs. 14% Y/Y), and in the near future smartphone sales will outpace global PC sales for the first time. This growth is projected to continue at an 11.5% CAGR through 2018. Despite high usage today, we believe that the opportunity in Mobile is only beginning. Only 30% of the 5.2B Mobile phone users have smartphones, and while technology advances continue to drive down costs and introduce new capabilities (e.g., payments), we see a massive market opportunity ahead (sources: Internet Trends 2014 and IDC Worldwide Mobile Phone Tracker 2014).
Our focus in Mobile Internet will be on-demand services, an area that has seen explosive growth over the past couple years. Over $4.8B of capital has been invested across hundreds of on-demand companies, including $2.2B in the past 12 months alone (source: The On-Demand Economy). We see three primary reasons why this investment is justified and why it will continue:
- Consumers see value in on-demand services. Consumers are looking for ways to streamline their to-do lists and make their lives easier as more resources compete for their time and money. Technology has also spurred the desire for instant gratification, where consumers seek products and services “on-demand”. Finally, proven companies like Uber have built consumer awareness and trust in the on-demand model.
- Employment trends make on-demand services efficient and readily available. Unemployment and underemployment rates for young college graduates are nearly double what they were before 2008, and an increasing number of workers are looking for part-time employment. As employees see the value of working on their own time and continue to face underemployment, we expect a continued supply of on-demand labor.
Source: Slate / Economic Policy Institute
- On-demand services are targeting many industries that are ripe for disruption. It is remarkable how people often struggled to find reliable, cost effective help for basic services until only a few years ago. Many on-demand companies were started over the frustration of getting price gouged from an unknown service provider, or worse – not being able to find a service when they needed it. While many of these established industries have begun to shift towards on-demand services, there’s still opportunity left for disruption. For example, less than 2% of the $400 billion home services market goes through online mobile platforms today (Source: Pando Daily).
Mobile on-demand services is a broad segment. Roger and I have broken down the market as follows: (click to zoom)
Over the coming posts, you’ll see our perspectives on each vertical. We look forward to embarking on this journey with you, and to hearing your thoughts and responses to our findings.